There are a variety of characteristics differentiating an independent contractor from a taxable employee. It’s important to recognize the difference between the two. Employee misclassification carries severe financial ramifications for workers and their families.
If you suspect you have been a victim of employee misclassification, the first thing you should do is seek legal assistance in determining the validity of your claim. The lawyers at We Stop Wage Theft are trained and experienced in doing just that. Our free and confidential consultation will guide you in the right direction and connect you with a law firm intent on getting you justice.
First, let’s take a look at what an independent contractor actually is.
What Is an Independent Contractor?
An independent contractor is defined as a worker free from the control and direction of an employer, who is engaged in an independently established trade, profession, occupation, or business. Independent contractors are generally their own bosses, they may have subcontractors performing job duties on their behalf, and they may have multiple customers for numerous streams of income.
What Does My Tax Status Mean?
There are two tax statuses to be aware of–the 1099 tax status and W-2 tax status. Knowing which is appointed for independent contractors and which is for employees is vital information.
1099 Status
A 1099 tax status means you are being paid as an independent contractor. As a contractor, you receive paychecks without federal income and state taxes being deducted. Independent contractors are expected to pay taxes quarterly or annually and they don’t receive company-paid benefits.
W-2 Status
A W-2 tax status means that you are a taxable employee. An employee’s paycheck will include deductions for state and federal taxes as well as benefits the company provides for you like health insurance. As a W-2 employee, your paycheck will contain a breakdown of deductions for taxes and benefits, making it easy to discern if you are being treated as a contractor or not.
Independent Contractor vs. Employee – How Do I Know Which One I Am?
If you’re struggling with determining whether you have been correctly classified as an employee or contractor, you can quickly make an assessment using the following criteria:
Employee
Independent Contractor
- W-2 tax status
- Paid salary, hourly, or by project
- Normally works for one employer
- Does not own the business they work for
- Continuing relationship with employer
- Employer controls and assigns performance of the job
- Uses employer’s tools and equipment
- 1099 tax status
- Runs their own business
- Has multiple clients and/or lines of business
- Work relationships may be temporary, not on-going
- Provides own tools and equipment
- Independently decides what work to do and how it will be completed
- Usually paid when the job is completed
Can Your Employer Change Your Tax Status from an Employee to an Independent Contractor?
Although typically not legal or ethical, an employer can attempt to change the tax status of an employee through the company’s payroll department. It’s likely an employee misclassification victim may not know they were changed to an independent contractor status until they get their next paycheck.
For an easy and quick tell, look at your most recent paycheck. If taxes were taken out, you are being paid as an employee, not a contractor.
Is it Illegal to 1099 an Hourly Employee?
Yes. In addition to employee misclassification being a form of tax evasion, the U.S. Department of Labor has a slew of statutes and regulations intended to protect taxable employees.
Employee misclassification breaks a number of laws. Penalties include reimbursement for lost wages, a stop-work order being levied against the offending employer, and even jail time.
What to Do if Your Boss Breaks the Law
Anyone suspecting they are a victim of independent contractor misclassification should seek legal assistance as quickly as possible. Employers hold the upper hand–they control the flow of documentation for their company and payroll department. Don’t let an employer’s greediness take money away from you and your family.
If You Think You’ve Been Misclassified, Contact We Stop Wage Theft
We Stop Wage Theft has knowledgeable attorneys on standby, waiting to assess your employee misclassification claim confidentially and free of charge. After our review, we’ll connect you with a legal team dedicated to seeking justice for your wage theft claim.
We Stop Wage Theft gives workers the tools needed to take immediate action so they can recover lost wages and protect themselves from employer retaliation.
Don’t let a greedy employer take advantage of you.
Know your rights. Protect yourself. Contact We Stop Wage Theft today.